Is there a secret sauce to reforming labour laws?: Q&A with an international expert

In this latest post on The Curionomist, we feature an interview with Lena Zezulin, an international regulatory and labour expert with the International Development Group LLC.

Lena Zezulin

Q. Lena, as someone who’s very familiar with labour reform efforts in many countries, what is your take on why countries embark on reforming their labour laws, despite it being a politically contentious area?

A. There are at least three major reasons that countries engage in labour law reform. First, labour laws that were adopted during the early years of industrialization tend to be very prescriptive and outdated. Thus, they do not recognize the modern digital economy and tend to impair employment growth in the new industries that depend on flexibility and mobility. Second, labour laws, for all their rigidity, at times do not adequately protect workers against discrimination and other forms of exploitation, such as unsafe workplaces. Labour law reform often takes place after an industrial tragedy or a well-publicized abuse. Sexual harassment in the workplace is a pernicious form of gender discrimination that often has not been included in older labour laws because it was viewed as a “personal” problem of the worker. The modern approach is for the employer to be responsible for workplace harassment just as the employer is responsible for other forms of workplace safety. Third, labour laws are sometimes amended in response to the pressure of international trading partners who insist on certain norms of labour relations being observed, for example with respect to child labour.

Q. If you were to list out some key ingredients to successful labour law reform, what would your top list be?

A. The key ingredients to a successful labour reform are:

  • Open, transparent discussion of the shortcomings of the present system with not only the traditional stakeholders (labour unions and employer organizations) but with the society as a whole.
  • Establishing minimal standards that are universal for the workplace and allowing workers and employers to negotiate other aspects. For example, a labour law might establish a minimum wage but should not go into the details of different wage levels within a workforce.
  • Allowing for flexible time and place arrangements between workers and employers. Part-time work and contract work are very common in the modern economy. Similarly overtime work should be minimally regulated, setting a maximum number of hours per week but allowing workers and employers to agree to a variety of shift arrangements that are necessary, for example in hospitals.
  • Recognizing the needs of a modern workforce that includes women and addressing gender discrimination and family requirements.
  • Allowing termination of employment when there is a downturn and the employer has not work needs to be balanced with the introduction of a viable unemployment insurance system.
  • Employer obligations should be clearly stated and enforcement should be specified in a way that promotes non-discretionary activity by the enforcing agency, whether it is an administrative agency or a court.

Q. Indonesia has recently legislated a comprehensive (and often controversial) new labour law – a so-called ‘omnibus law’. Firstly, could you explain what an ‘omnibus law’ means, in this context?

A. “Omnibus” is a term used for laws that combine many diverse and unrelated topics. This approach is chosen when the legislature wants to proceed very quickly. Sometimes the result is that controversial and uncontroversial subjects are combined in an effort to diffuse opposition. Usually this approach is chosen when there is a crisis.

Q. What are some of the key features of Indonesia’s labour law changes, and what are your views on why these were done?

A. The Indonesia Omnibus Law is very extensive scope, as it amends 79 plus laws. In addition to affecting labour laws, it makes extensive changes to environmental laws. The requirement of doing an environmental impact analysis prior to construction is significantly reduced.  There is opposition by environmentalists who fear deforestation will be an inevitable  result of the law. With respect to labour law specifically, the Omnibus law has the following features:

  • Reduction in the number of months of severance pay that are available, with some alternative provisions for compensation by the government
  • Reduction of weekend days from two to one
  • Some reduction in maternity leave time
  • Regularize outsourcing of work to contractors
  • Abolition of sectoral minimum wage; minimum wage is to be set by governors in Indonesia 
  • Attempt to reduce red tape and interference in labor markets by reducing other sectoral distinctions

Opposition to the Omnibus law is driven as much by COVID 19 economic challenges as by intrinsic opposition to any aspect of the Omnibus law.

Q. I guess there’s never really an easy time to do labour reforms, but could it be that a crisis like COVID 19 and the economic fallout and strains that it brings, is perhaps a good time to make these tough reforms? With a view to boosting growth? 

A. Crises are often times when reform can be undertaken. To give an example from US history, the Great Depression ushered in a number of reforms related to social safety nets, such as social security and unemployment insurance. The economic downturn caused by COVID 19 and the resulting decline in trade and tourism, along with unemployment, does indeed present an opportunity for reform that is designed to stimulate employment through the creation of flexible arrangements between employers and employees. In addition, the mandatory COVID 19 quarantines demonstrated the need for sick leave and other arrangements that need to be in place when the government shuts down a workplace. The resulting challenges present an opportunity to include provisions in labour law for such occurrences.

Q. How does Sri Lanka’s own efforts at labour law reform – which began a few years ago – compare to the Indonesian example?

A. I hesitate to make a comparison as I am not informed enough about the Indonesian process. I would say that the Omnibus approach, which raises objections to unrelated environmental issues, is a major difference.

Q. From what we’ve seen in Indonesia this past month, and perhaps drawing from lessons elsewhere, any best practices that Sri Lanka should follow as it pursues a path towards reforming labour laws?

A. Important reform practices include the following:

  • Consider gender as a central issue. Women are very much underemployed in Sri Lanka. Current labour law does not address their needs at all.
  • Communication with the public is vital, at all stages, to explain the reasons for reform, the need for modernizing an outdated set of laws. This should include not only the narrowly defined stakeholders – trade unions and employer groups – but the public at large. Only 9 % of private sector workers in Sri Lanka are members of unions, thus unions do not necessarily represent the interests of all workers.
  • Work on a win-win approach. Include items that are very important to employers as well as protections for employees. Employers have many concerns about efficiency and flexibility.
  • Do not forget enforcement. Employers and employees both complain that dispute resolution is slow, ineffectual and unsatisfactory.
  • Labour law reform needs to be coupled with other reforms – unemployment, retirement, protection of the right to engage in collective bargaining, and child care.
  • Seek support from all political parties.

For further reading, check:

https://www.bloomberg.com/news/articles/2020-10-05/indonesia-jobs-bill-gets-support-from-majority-in-parliament

https://www.nytimes.com/2020/10/08/world/asia/indonesia-protests-jobs.html

https://oxfordbusinessgroup.com/news/can-indonesia’s-omnibus-law-drive-its-covid-19-economic-recovery

Cover image: Dita Alangkara, Associated Press. Profile picture courtesy Harvard University (https://stories.harvard.edu/links/lena-zezulin)

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